Thank you so much for having us here today. It's always an honour.
Fintechs Canada is an industry association of Canada's most innovative financial technology companies. Our mission is to make Canada's financial sector more responsive to the needs of Canadians.
A few years ago, the White House issued an executive order that would get the whole of the U.S. government to promote more competition in the American economy. Not long afterward, the American financial consumer protection regulator put out a draft rule to jump-start competition in American banking.
“Making banks work harder for you”—that's literally what the government of the United Kingdom said it would do in 2016. The United Kingdom had already set the foundation for a more competitive banking system by modernizing its payment system. In 2016 the U.K. said it would do more—it would implement open banking. It delivered on that promise just a couple of years later.
Canada has yet to do what our peers have done to make banks work harder for Canadians.
In competitive markets, two things are supposed to happen: Prices are supposed to go down, and the quality of services is supposed to go up. In Canadian banking, we're not seeing that. Prices are going up. Our banks are making more money from non-interest income—in other words, the fees they charge Canadians, the service fees on bank accounts, investment management fees, payment processing fees and administrative fees on mortgages and other loans.
We can see, based on public data, that the fee-based income banks are making per Canadian account holder has increased by 8% over the past five years to just under $3,000 in 2023. That's per year, and banking has largely stayed the same. My banking—how I save my money and how I pay my bills—hasn't changed for years. There are Canadians who wonder why they're paying more but not getting more.
High fees aren't the only cost of a banking sector closed off from competition. The lack of competition also hinders Canada's productivity growth. Banks aren't just vaults for our money; they are also intermediaries investing in other sectors to make them more productive—at least, that is what's supposed to happen,. However, a C.D. Howe Institute report from 2019 says that our financial sector's contribution to productivity growth has been underwhelming. To be more productive, we need our businesses to grow. It has been said that Canada is good at getting businesses started but not good at getting businesses growing.
One of the reasons is that small businesses in this country aren't getting what they need from banks to fuel their growth. According to OECD data, loans are more costly for small businesses in Canada than they are in other advanced economies.
According to the CFIB, 15% to 25% of loan applications end up being rejected by the big five banks. In fact, from 2012 to 2022, the total number of loan applications approved for small businesses decreased by almost 30%. The lack of competition in banking costs us not just as customers of banks but as Canadians.
Fintechs Canada believes in whole-of-government approaches to complex issues. Promoting more competition in the financial sector is one part of the broader solution to make Canada a more affordable and productive place to live. That's why we're glad to see Bill C-59 contain amendments to the Canadian Payments Act. These changes will promote competition in banking by giving fintech companies and credit unions access to the new payment system being built by Payments Canada. Industry insiders call this new payment system Real-Time Rail.
These changes are good for competition because you can't operate in the financial sector if you can't access a payment system. Outdated laws give only Canada's biggest banks access to the system right now. These biggest banks in turn resell their privileged access to everyone else. This puts the competition in an untenable position. They have to do business with their competitors in order to compete with them.
Access to Real-Time Rail will level the playing field as it is right now. For that to happen, though, we need Payments Canada to actually launch Real-Time Rail, with no more delays. According to the World Bank, Canada is one of the few countries in the world without Real-Time Rail. We support the amendments to the Canadian Payments Act in Bill C-59, but by themselves they're not enough. Our G7 counterparts have done so much more. If we want to make Canada a more affordable and productive place to live, it's time that we also do more.
Thanks again for having us. It's been an honour to share our perspective with all of you.